Money Diaries — Financial planning for teachers

Remember the day you decided to be a teacher? You’d have likely seen it as a calling. The pay wasn’t the first thing you had in mind. You were driven by a conviction of doing good by society. It’s that special meaning behind the job that keeps you going on despite the demanding nature of this profession.

Here’s what others don’t see behind the scene. The extra care for a class of budding young adults, tedious administrative duties, social work for kids from troubled homes — and all before the first bell rings at 7.20AM for class. After the tests and homework are assessed, there are also co-curricular activities to manage and lesson planning for the weeks and terms ahead. 

You get teased for the hours clocked during school holidays, and yes time and time again, Singapore teachers register one of highest number of working hours globally for the profession. With so much on your plate, how can you also set aside time to manage your money?

Doing your job well as an educator is just the start of your wealth journey — how you manage your hard-earned dollars thereafter is the key to a comfortable life and stable retirement in the future. 

The road to investing can be daunting, but is underpinned by some fundamental strategies:

1. Saving is the foundation, but cannot shield you fully from the pains of inflation.
2. Consistent investing beats market timing 9 out of 10 times 
3. Fees can hurt your returns significantly, so be mindful of your investment costs.
   

The difference between saving and investing

Saving is the process of setting aside a portion of your income, and is the foundation to building your wealth. Setting aside a portion of your income (wherever that comes from) each and every month allows you to build the foundation to invest your money and grow that over a longer period of time. But by itself, saving is not sufficient to manage inflationary pressures – where a dollar tomorrow is not worth the same as a dollar today. This is where investing comes in. 

What is investing? Investing is the process of putting your money to work for you today in a financial product with the expectation that it will provide a rate of return that makes the delayed gratification worthwhile. Although there are no guarantees, sophisticated investors make decisions based on academic research, long-term historical performance and analysis. Arming yourself with the right information before starting on your investment journey, or working with a digital wealth advisor like Endowus can help you navigate the realm of investing with confidence based on your risk tolerance and life goals. 

Do you really need to invest your money? Are inflationary pressures really that impactful? Let us take a look at the example below. 

Inflation is the measure of how overall prices of goods and services increase over time. Singapore as an open economy is vulnerable to hot money from beyond our shores that can raise asset prices, and has to accept the rising prices of imported goods — over time, things simply get more expensive. Inflation over the past 20 years across all sectors of the economy is up 36%, and up even more when you look at things like food, and education. 

If you leave your money in your savings or current account, the base interest rate there is currently about 0.05% a year. In 30 years, $100,000 in that account will become $101,510 for a total return of 1.51%. Considering how much more prices have risen in that same period, it’s clear that a 0.05% rate of return is insufficient when it comes to preserving your purchasing power.

Now, if you leave your money in a fixed deposit account for 30 years at 1% a year, that will increase your savings to $134,785, for a return of 34.78%.

While that might seem attractive, compare that to what happens when you invest it in a balanced investment portfolio of equities and fixed income products, providing a relatively conservative estimated return of 6% p.a. That same $100,000 will grow to $574,349, for a return of 474.39%. 

Which amount would you rather have when you retire? And, how soon would you like to hit that goal of yours, whether it is retirement, paying for your kid’s education, or having a tidy sum for a rainy day?

Life gets more expensive

Leaving your money in your bank account simply can’t keep up with inflation. If over 30 years, your account only grows by 2%, or even 35% in total, that’s not enough to keep up with the increase in prices of 30% to 85% over a 20 year period. While some might think it’s the safest thing to do, the risk you are taking is that you might not be able to live the life you want in the future because you cannot afford to with your weaker purchasing power, despite setting aside a large dollar value amount of money. 

Investing your money allows you to grow it so that you can live better today, tomorrow, and into the future.

How do you start investing?

We are extremely fortunate to live in a time where technology has provided multiple platforms, such as Endowus, that allows you to invest your money in different products, all with the touch of a button. However, before even clicking that first “INVEST NOW” button, the first step is setting your goals for why you’re investing your money.

Setting realistic goals

The first step to investing well is to understand what your goals are for investing your money. 

Here are three questions you can ask yourself to start. 

1. What do you need the money for?
2. When do you need the money?
3. How much do you need when you reach that date?

Setting your goals helps you understand not only how much you need to save and invest, not only what’s within your reach, but also guides you during volatile moments where emotions can run high.

While setting a target amount to save and invest is good, whether it’s $1,000, $5,000, or $10,000 a month, those are all good numbers, but without the context of what you need the money for in the future, and when, could prove detrimental in the future if you haven’t invested to hit the targets you’ve set for yourself, or if you end up taking on more risk than you need to for your goals

After you do that, you’re ready to invest your first dollar! 

Time and consistency beats market timing 9 out of 10 times 

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Time in the markets, not timing the market, is a time-tested (pun fully intended) way of investing your money. Even if you were the “worst investor in the world,” only investing during the peak of the market in every decade from 1970 to our present day, you would still come out ahead with an annualised return of almost 9%. 

So, time in the markets — and not timing the market — is what will allow you to grow your wealth in the long run. With that mentality in mind, what can you control so that you keep to this method of investing?

What you can control

Cost matters

Choosing the right products matters, and one of the key considerations should be the products’ fees..There are many distributors who choose to tack on a sales charge of 1-3%, which effectively translates to being in the red $1,000 to $3,000 immediately for every $100,000 invested. Needless to say, sales charges can have a pretty significant impact.

In addition to the sales charge, you should also be mindful of the annual management fee that goes to the fund manager. Hidden within this annual management fee is something called a trailer fee, a commission that flows back to the company that sold you the product. These fees potentially incentivises bad behaviour on the part of the company selling the product, because they might push a product that gives them more commission, and not one that’s best for your needs. 

These fees eat into your returns. 1% in fees adds up to 240% in lost returns over 30 years. 

Your emotions

As an educator, you focus daily on doing your best to pass on valuable lessons to  the future generations. As an investor, what you can control is your career and how it’s going. That’s where you’ll make the bulk of your money to save and invest.

You can also control how you invest your money, and what we mean by that is investing your money in a globally diversified portfolio. When we talk about diversification, it’s not just buying various company shares, or across different brokers, but rather, diversifying across markets and sectors. 

What is most important for you to control is this — your emotion, and your behaviour. While most people might count themselves as rational human beings, monetary gain and loss can bring out the worst emotions and reactions in people. When the market is tanking, people panic, and when the market is climbing, there is euphoria, and people want to buy and sell. 

But, as we shared earlier, no one can time the market, and time in the market, plus dollar cost averaging in - investing your money at a steady rate over a long period of time, has proven to be the best way to grow your money and your wealth, so that you can live better today, tomorrow, and into the future. 

Preparing your students for the world ahead of them is top of mind for every educator. Sometimes that means you can neglect preparing for your own financial future. It doesn’t have to be this way — there are solutions to help you through your busy schedule. 

At Endowus, we believe in making investing your money in a globally diversified portfolio convenient to help anyone, including busy educators, grow their wealth over the long term across all sources, including cash, CPF funds, and Supplementary Retirement Scheme (SRS). When used correctly, this trifecta is a potential pot of gold for you when you’re ready to retire. Want a steady stream of income? We’ve got that covered too. 

To get started, find out more here.